Questions and what people are saying…our answers and reactions.

Can the market crash?

Define crash! Early this year, markets dropped double digits within days. We could call that a crash. If you are asking whether we could have a 1987 crash…well, that would be approximately 6,000 Dow points. Oh hush! We never take any price action off the table but crashes just do not happen often. The world is littered with pundits calling for crashes on a daily basis. Every time the market is hit, they come out of the woodwork professing genius. Let’s just say that conditions are such that yes, things can worsen. Why? LEVERAGE/MARGIN… is the highest on record. Margin is the best friend of the market while it is going up. It is the biggest enemy when markets are going down as the leverage has to come off first before the real selling starts.  Why? THE PASSIVE INVESTOR has been lulled to sleep by a market that refuses to go into a real bear market. Passive becomes less passive when markets go down. There are trillions in passive funds. Why? THE MORONS AT THE CENTRAL BANKS have created asset bubbles that only when the music stops will we know.

Can the markets wash out soon?

Sure! We saw it happen early this year. Markets bottomed and then took time repairing but the lows were in.

Could a further drop affect the election?

Hell yes. Every 100 point drop matters. I can see the ads now. “THE TRUMP DUMP!” “LOOK WHAT TRUMP HAS DONE TO YOUR 401K!” Of course, the media who hardly reported the good…will run  24/7 if markets turn bearish.

Are you worried about President Trump blasting the Fed?

Again, hell yes. It is not a whopping 2% Fed funds that could cause a worsening stock market. Guess what could cause a worsening stock market? Correct. President Trump interfering with markets and the Fed with his mouth. His words are simply ill-advised. To think a 2% Fed funds rate is problematic…sorry. Keep in mind, the important capital is tied to longer rates that the Fed is not playing with right now. The president is making a huge mistake calling Powell “crazy!” If he wants to call someone crazy, let it be Bernanke who started this easy money train down the tracks.

Speaking of Bernanke, the WSJ took him to task this morning in an op-ed. THANK YOU. We know it is now many years ago, but he started this moronic experiment. He also got other countries to follow suit. Europe and Japan still have negative rates and are still printing money. They will never know real price discovery…until price shoots the middle finger back…which may be happening now.

What people are saying:

IT IS GOOD WE ARE OPENING DOWN THIS MORNING AS IT GIVES THE MARKET A CHANCE TO WASH OUT.

We think that is thinking a little too short term. We suspect the damage that has been done, at the very least, needs some more time and price.

THE ECONOMY IS STRONG AND EARNINGS WILL BE GREAT.

Careful. Markets look forward, not backwards. In fact, markets could not give a crap about yesterday. Keep in mind, with energy prices and interest rates spiking, the cost of everything has gone up. We will know soon enough how much effect there has been during not just earnings reports, but more importantly, the guidance. We do not want to hear more of what PPG just said.

THE MARKET HAS CORRECTED 5% 23 TIMES SINCE THE 09 LOWS AND EVERY TIME, THE MARKET CAME ROARING BACK EVENTUALLY.

That is the good news…BUT IT IS ALSO THE BAD NEWS as we promise you, the bear market has not been extinguished….even with all the easy money…and yes, way overdue.

“THIS IS JUST A BLIP! STOCKS ARE CHEAP! THE DROP IS PROVIDING GREAT VALUES.”

The market could care less about what people think. Value is what the market thinks.

And lastly, just remember our reports of past months. Remember what we have been saying on radio. With the DOW/S&P/NASDAQ/NDX all near highs, a ton of stuff was already bearish including many of the world markets. Negative divergences were all over the place and picked up in the past couple of weeks. With 50% of the market bearish, it is easier to sell off markets if they decide to come down. We were in hopes that if we could get past September and October earnings, that we could have a normal end of year rally, narrow but nevertheless, a rally. But when we saw last week that the 50% that was working start to roll over, we knew something was up causing us to get real worried on October 4th. We are amazed but not so amazed how much destruction there has been but what really has us worried is what is on the new low list. INDUSTRIALS, AIRLINES, CHEMICALS, MATERIALS and all kinds of crap are plunging. If you are a big believer the market is a great forecaster…then one has to wonder whether the economy is topping out with the numbers heading south in the months ahead. We are already seeing some worrisome numbers in other parts of the world. Hopefully, this is just another nasty correction, akin to what we saw at the beginning of the year. But we must tell you, the internals are much worse, world markets are much worse and now a president is interfering with something he should not be interfering with.

PRE MARKET

THIS IS A MAJOR HURRICANE. HOPE YOU ARE ALL LISTENING TO GET OUT OF THE WAY.

OOOPS…NDX futures down decently…DOW and S&P less so.

We have absolutely no idea of where this market goes…just that:

RATES GOING HIGHER

OIL PRICES (while pulling in a wee bit) HAVE HAD A BIG RUN

GROWTH STOCKS CONTINUE TO BE YONKED

THE DOW REMAINS STRONGEST (not the best news)

THE S&P SITS ON THE 50 DAY

Patience here.

Other notes:

Trump states he is not happy with the fed because they are raising rates too quickly. The last time we had an economy like this, rates were 6%. We hope he shuts up on this. He should not worry. Any blip will have them not only stop…but they will lower rates…as they are quite insane. Europe and Japan are still negative and still printing…and China has eased twice in the past month.

“You cannot be civil with a political party that wants to destroy what you stand for, what you care about,” “That’s why I believe, if we are fortunate enough to win back the House and/or the Senate, that’s when civility can start again. But until then, the only thing that the Republicans seem to recognize and respect is strength.” This statement from Hillary Clinton. For all the complaints about Trump, this is what she says!

Mark these words down. THERE IS GOING TO BE A WAR ON AMAZON. Look for many to call for some sort of break-up using anti-trust. I am seeing it and feeling it on a daily basis…and I am not just talking Trump blasting on Bezos because of the Washington Post. I am seeing not so subtle rhetoric from the left on this.

Taylor Swift…Kanye West…BOOOOOOORING!

Lastly, Nikki Haley…the only way to describe my feelings…is that whenever she talked, I wanted to listen. Can’t blame her for taking a break.

 

 

 

PRE MARKET

Futures down off of weak Europe and Asia. China down even though they eased again. Not thrilling news.

Markets short-term oversold but as we stated, oversold can become more oversold.

Earnings start to come out in droves late this week with a few important FINANCIAL names like BLK, C, JPM, WFC. PNC.

WEEKEND NOTES

Last week, we wrote this:

While the DOW goes into new highs, nothing else is.
While the DOW goes into new highs, advance/declines have made relative lows.
While the DOW goes into new highs, the RUSSELL 2000 and the MID-CAPS have broke initial support and are woefully under-performing.
While the DOW goes into new highs, new yearly lows have expanded markedly while new yearly highs have contracted. (Many muni-bond funds are on this list. While they are non-operating companies, it tells you the state of interest rates!)
While the DOW goes into new highs, a slew of leading growth names have topped with a decent amount of names breaking down.
While the DOW goes into new highs, OIL PRICES continue to soar.
While the DOW goes into new highs, LONG BOND YIELDS have broken out to new yearly highs.
While the DOW goes into new highs, FINANCIALS continue to meaningfully under-perform.
While the DOW goes into new highs, FOREIGN MARKETS continue to meaningfully under-perform.
While the DOW goes into new highs and nothing else does, tons of froth and speculation pervades the market as “no sales” marijuana stocks get market caps in the tens of billions and 80% of this year’s IPOs lose money.
SO THE RECENT DROP DID NOT COME OUT OF THE BLUE. The internals of this market have been deteriorating. As soon as the growth started to gag, most followed the lead. The NASDAQ and NASDAQ 100 broke the 50 day, The RUSSELL has been so weak, it got all the way down to the 200 day before bouncing.

The market is oversold on a near-term basis but oversold can get more oversold. (We are hearing China eased again over the weekend !). Leave no doubt that the ice got even thinner last week. Many are calling this a blip. After all, the DOW and S&P are only down a few percent off their highs…but they are not telling you that underneath the surface of the DOW and S&P, the action is much worse.

We just go slower here. We also get excited. Why? It is in the corrections that the cream rises to the top. It is in the corrections that it is easiest to isolate the strength. If this is nothing more than a correction of unknown price and time, ultimately, the relative strength will show up. Just know as we head into earnings season, markets look like it needs some more price and time.

The only areas emerging are ENERGY areas as prices have moved out to new highs. After that, not much new. On the other end, we continue to watch the SEMIS closely. The SOX remains very wide and loose while trading below the 200 day. There is a decent chance the past few months are tracing out a gigantic top. If that is the case, look out.

IT’S NOT THE NEWS. IT’S HOW MARKETS REACT TO THE NEWS.

It’s not the news. It’s how markets react to the news.

Many are saying markets have to go up because economy is strong, earnings are strong, unemployment is low and consumer confidence is through the roof. They are correct on all those accounts except one. The market DOES NOT have to go up on good news. Yes…markets do go down on good news every now and then. This is because markets look forward, not backwards. Markets factor in what is ahead, not before. So careful. Everything was wonderful as markets topped in early 2000. Real estate was strong as banks started to top out in early 07.

We are not saying the end of the world is at hand. We are saying this is a market that has been deteriorating from an already very narrow market. This is a market where foreign markets have woefully under-performed with some markets already in the 20% bear market mode. This is a market that with indices at the highs, there were many more new yearly lows than new highs indicating a masking of trouble. And now, many leading names have topped with some totally broken down. Healthcare, which has led recently, is getting serious distribution. The small and mid caps have already moved below support/50 day moving average.

The good news remains that the DOW and S&P remain above the 50 day. But the NDX now sits on the 50 day and the NASDAQ now hangs below. The good news is that higher rates on the long end stopped the ugly in the financials…for now. In the past, deterioration has led to pixie dust stopping the downside and then leading to a narrow upside. We are open to anything. Just know, the ice has been getting thinner.